VAldis Dombrovskis comes for a casual interview for WELT in Berlin. He has much more work to do in Brussels than usual. In the future, he will not only coordinate European economic, monetary and labor market policies as one of the three executive vice-presidents of the EU Commission. In addition, the former Prime Minister of Latvia must permanently take the post of Commissioner for Trade after the Irishman Phil Hogan resigned after the scandal.
Being Europe’s leading trade politician is considered hard work, but it doesn’t seem to scare a conservative politician. “It’s a lot of work,” he says. “But I’m looking forward to it.” Interview with WELT – the first interview after his nomination for a new position; an opportunity to learn more about his position on key trade issues.
WORLD: You have a difficult task ahead of you. International trade policy has been tight since US President Donald Trump came to power. The trade rhetoric of Joe Biden, his candidate for the U.S. presidential campaign, is also very reminiscent of America First. Do you expect US trade policy to be different under President Biden?
Valdis Dombrovskis: I can’t predict U.S. trade policy, but EU-US economic relations are the largest in the world. Trade costs more than a trillion euros a year, so it is very important that we develop our relationship in a constructive way.
WORLD: The World Trade Organization (WTO) will soon give the EU permission to impose punitive duties on the United States for American aid to Boeing. Are you going to do that?
Dombrovskis: First of all, we want to agree to resolve the dispute with the US without imposing new tariffs, as the US government has done. For such constructive negotiations to be possible, the United States must, of course, first reduce tariffs. But they have every reason. In principle, the US and Europe should work together to tighten international aid rules in the aviation sector. If everyone follows the same rules, we will be able to keep new, highly subsidized competitors, and that is also in the US interest.
WORLD: Is the WTO in its current form still a forum where such problems can be addressed?
Dombrovskis: I invite the United States to work with us to promote WTO reform. We share the many goals of WTO reform. The WTO must become more modern and be able to respond to modern challenges. Industrial subsidies, forced technology transfer or systematic infringement of intellectual property; these are problems we want to solve, and so is the US. We believe that a multilateral approach at the WTO level is more effective than an aggressive trade policy.
WORLD: Your list sounds like a list of Europe’s trade problems with China. The EU has been trying for years to conclude an investment agreement with China; You coordinate the negotiations. Recently, however, relations between Europe and China have been severely damaged; not only because of the repression in Hong Kong, but also because of the disinformation campaigns around Covid-19. The economy today is also more sober about its business in China than a few years ago. Does the EU need to adjust its attitude towards China?
Dombrovskis: Over the past two years, we have already adjusted our position. In some areas, we work closely with China, and in others less. You see this in what we sometimes call China a partner, sometimes a systemic rival, and sometimes a strategic competitor. Our attitude towards China is more nuanced and demanding than before.
WORLD: How does the Chinese side react to their changed attitude?
Dombrovskis: We held several rounds of discussions on problematic issues, most recently in July. And we see the Chinese side opening up. China also knows that the EU market is much more open than the Chinese, and has realized that we need more reciprocity. We want to conclude negotiations on an investment agreement this year, and it is still possible. However, this requires concessions from China in terms of market access.
WORLD: Despite the US presidential election? The government in Beijing will want to wait and see how it turns out, right?
Dombrovskis: China is also interested in concluding talks this year. Very significant negotiations will take place in the coming weeks, and I am confident that significant progress will be made.
WORLD: The British government has passed a law that violates the European Union’s Brexit treaty. Is it possible to negotiate with such a colleague at all, if you are not even sure that the government will adhere to the achieved result of negotiations?
Dombrovskis: We are concerned about the behavior of the British government. If the UK does not comply with the exit agreement, there will no longer be grounds for a free trade agreement between the EU and the UK. The UK government needs to fix this before we continue negotiations on our political and economic relations.
WORLD: The free trade agreement with the Mercosur states (these are the countries of South America) is suddenly again called into question in the EU member states, mainly due to environmental problems. What does it mean for Europe’s trade policy if this treaty, which has been negotiated for many years and which is considered a great success for the EU, cannot finally enter into force.
Dombrovskis: We need to respond to the problems that exist in the Member States regarding Mercosur. The situation in the Amazon is alarming. However, the Mercosur agreement restores Brazil’s commitments under the Paris Agreement. And it gives us a platform to demand other commitments, such as combating illegal logging. However, when it comes to these issues, we need to be confident that all contracting parties will meet their obligations. How this can best be done in the context of the agreement will rightly accompany and influence the ratification debate in Europe.
WORLD: So far, you have worked hard to ensure the stability of the European financial system. In the context of the Crown crisis, EU governments support companies and employees with huge amounts of money. However, in the coming months there is a risk of bankruptcy, and then many bank loans may fail. Do we need to prepare for a new banking crisis in Europe?
Dombrovskis: In principle, European banks are better capitalized than they were before the financial and economic crisis, and thanks to the current policy of the ECB have more liquid funds. Currently, we do not register that loan defaults are increasing. But there are signs that loan defaults are becoming more common. There is always a certain delay, so it will take some time before it really gets that far. This gives us time to present an updated strategy on how banks can deal with bad loans by the end of the year. Because, of course, it is better to solve this problem, which may arise at some point, early and consistently throughout the EU. We can’t wait for loan defaults to accumulate to become a problem. However, in principle, the problem will be less than in the last crisis.
WORLD: The wirecard scandal continues to worry the German public and politics. The German banking supervisor Bafin obviously had significant deficits in control over the company. But should Brussels also draw conclusions?
Dombrovskis: The European Commission has instructed the European financial regulator ESMA to investigate the case. We expect results by the end of October. In our opinion, we should expect these results and the results of investigations in Germany. But it is clear that investors have not been truthfully informed about Wirecard’s financial position as required by the EU Transparency Directive. Their performance was to be monitored by Baffin. We are currently also reviewing previous rules of information obligations and auditing, but to some extent Wirecard is a problem of oversight, and the question is whether compliance with existing rules has been properly monitored and whether the rules have been sufficiently enforced.
WORLD: What is basically and how is Wirecard dealing with Germany as a place for the financial industry?
Dombrovskis: I do not want to wait for the results of German and European research. But obviously there were problems with supervision. The results of the investigation will show exactly where, how exactly and what it means for Germany.